UK central bank warns of recession risk from Brexit

The Bank of England warned on Thursday that Britain could fall into recession should voters opt in a June referendum to leave the European Union a stark assessment from an institution known for being independent of political campaigns.

In the most damning remarks to date on the consequences of a so-called 'Brexit', Bank of England Governor Mark Carney said that such a vote would have material consequences for both growth and inflation and "could possibly include a technical recession".

After a meeting in which they decided to keep interest rates on hold, members of the Monetary Policy committee said that a vote to leave the EU could prompt households and firms to delay spending, lowering demand for labour and causing unemployment to rise.

"If there were a vote to leave, that would have material consequences for both growth and inflation and therefore affect the stance of monetary policy," the bank said in its quarterly report on the outlook for the economy.

The intervention underscores the increasing concern on the part of the central bank ahead of the vote on June 23. Carney said he had a responsibility to offer the bank's analysis of what might happen, given that a Brexit would affect the economy.

"We're providing information as best we can about our potential reaction," he said.

Even without the shock potential of Brexit, there are concerns the economy is beginning to falter. The nine policymakers unanimously agreed in their meeting to leave the key interest rate at a record low of 0.5 per cent and slashed the growth forecast for the economy this year to 2.0 per cent from 2.2 per cent in its last report in February.

Bank of England warning

Recent reports have suggested that the Bank of England has warned commercial banks to prepare for a rate reduction if the country votes to leave the 28-nation bloc in the June 23 referendum.

But in the absence of Brexit, the next move in interest rates is more likely to be up, the Bank of England said. The pound rose on that expectation, as higher rates tend to bolster a currency. It rose 0.5 per cent since the Bank of England decision, to US$1.4518.

The central bank joins economists at the International Monetary Fund, the Organisation for Economic Co-operation and Development and the UK Treasury in warning of the consequences of a British exit.

Prime Minister David Cameron, who is campaigning in favour of staying in the EU, noted that the central bank's report represented more than Carney's opinion.

"This is not just the governor of the Bank of England. This is the entire Monetary Policy Committee of the Bank of England, who are independent by law," Cameron said. "And they have said very clearly that their fear is that if we leave the EU, that will lead to higher prices and lower growth ... . Their job is to tell it like it is and to warn of risks in the economy, and they couldn't be more clear that there is a risk."

However, campaigners in favour of leaving the 28-nation bloc dismissed the news as fearmongering by their opponents.

"First war, then genocide, now a recession," Leave.EU headlined in its response. "More scaremongering shows the panic in the heart of the establishment," the group said.

- AP